Gold price could retest $1,180, OPEC decision weighs on sentiment

Otmane El Rhazi from The Bullion Desk.

The gold price continued to drop on Friday morning in a cross-commodity washout triggered by OPEC’s decision not to cut oil production.

Spot gold was last at an intraday low of $1,184.00/1,184.80 per ounce, down $4.60 on Thursday close and with a retest of $1,180 on the cards.

Lower energy prices are dampening sentiment in what could be either a pause in the breakout or a reversal of the gains of the past three weeks.

“Precious metals are generally holding up well given the down draft from oil; if the dips continue to remain well supported, rebounds could continue at a steady pace. A steady rebound will also lessen the chance of aggressive short-covering rallies, which should keep the market more orderly,” FastMarkets analyst William Adams said.

Oil prices plunged after OPEC decided left its output limit at 30 million barrels a day. Brent crude oil subsequently slumped to a low of $72.78 per barrel, its cheapest since August 2010, while WTI hit $69.44, its lowest since June 2010.

“The slump in oil prices is clearly weighing on prices because it will drive the already low inflation rate even further down, meaning that gold becomes less attractive as a means of hedging against a loss of purchasing power,” Commerzbank said in a note.

Also weighing on sentiment is a stronger dollar at 1.2444 against the euro after the European Central Bank earlier this week hinted at introducing a quantitative easing programme in the next quarter.

Trading in the US is likely to remain subdued again after the Thanksgiving holiday on Thursday.

In data, the EU flash CPI estimate was 0.3 percent as forecast, albeit down from the previous 0.4 percent, while the core CPI estimate at 0.7 percent was also as predicted, as was the unemployment rate at 11.5 percent.

French consumer spending at -0.9 percent undershot, as did the Italian preliminary CPI at -0.4 percent and the Italian monthly and quarterly unemployment rates.

Japan’s housing starts are declining at a slowing rate – they came in at -12.3 percent – but German retail sales climbed 1.9 percent after a 2.8-percent drop previously.

In the Swiss referendum on gold on November 30, polls indicate that support for the ‘yes’ campaign is waning – most traders appear to see a ‘no’ vote as a foregone conclusion.

In the other metals, silver was last at $16.00/16.12 per ounce, down 13 cents. Platinum at $1,213/1,218 was up $3 and palladium at $800/806 was unchanged.

(Editing by Mark Shaw)

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